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The big slide: as the U.S. economy rolls downhill into a recession, many people are feeling the hurt in lost jobs and budget cutbacks. Will the good times return? (National).

The script Billy Tilson cooked up for his life read like this: graduate from college, fend off the job offers, choose the absolutely coolest job--then buy a wheelbarrow to carry the cash to the bank.

But Tilson, 23, was laid off last year after eight months on his first job at a high-powered New York City investment company. Even so, he expected life would still go according to plan. Then came the reality check.

Finding a new job as the U.S. economy rolled downhill into its current recession was like heading for spring break, only to find rainy weather.

"All the career help I'd had before was basically how to choose between all the job offers you get and how to handle interviews," Tilson says. "Now it was pretty dramatic if I could just talk to someone and get an interview."

Tilson, who eventually landed a job for less pay and fewer benefits, is one of the small army of Americans--from teenagers right up to senior citizens--now feeling the pain of America's first recession since 1991. The go-go times of the late 1990s, when the U.S. economic machine was minting new millionaires at the fastest rate in history, will not likely return anytime soon.


A recession is a widespread drop in the economy lasting more than a few months. This one, which began last March, has been fueled by the collapse of many Internet companies in the last two years, cutbacks in business spending, and the aftereffects of the September 11 attacks. It has thrown more than a million people out of work in the past year. The U.S. economy, after enjoying a historic boom and passing the $10 trillion mark in all goods and services produced, began shrinking last summer (see graphs, page 10).

This is the 11th downturn since World War II. Many experts predict the economy may have already bottomed out and will rebound sometime late this spring or early summer. But they also suspect the turnaround will come slowly.

"It is a foregone conclusion, unless something comes totally off the radar screen, that there will be ... a recovery before the end of the first half" of the year, says Charles Pradilla, market strategist for the consulting firm SG Cowen.

"But there may be some disappointment with the vigor of the recovery."

This downturn is more widespread than the last one; 37 states report fewer jobs, compared with 31 in the 1991 recession. It has affected nearly every income group, from rich to poor. About 17 percent of Americans say they've been directly affected, according to the polling firm Louis Harris & Associates.


Teens are in the line of fire of this recession. Some whose parents have lost their jobs are reconsidering college plans; others simply will make do with less spending money. Still others will find summer jobs--especially the choice, high-paying kind harder to come by.

For many adults who have lost jobs over the last year, the primary reaction has been disbelief. "I was stunned," says Allegra Kochman, a 31-year-old graduate of Dartmouth and Columbia who was laid off in November from a New York architecture firm. "This isn't supposed to be happening."

Ripple effects go beyond direct job loss. Since the recession began, 43 states have less money from taxes, and 36 have begun cutting their budgets. The reason: When businesses and families make less, they pay less in taxes. Governments may cut programs such as funds for the homeless and Medicaid, which pays for many poor people's health care. Other states may trim school spending and stop hiring teachers.


In a recession, a kind of spiral sets in. Amid this downturn, many businesses--insurance firms, publishers, construction companies--began to feel they had spent more on computers and other equipment than they needed to. As they cut spending, the companies that sold the equipment--including IBM, Intel, and Dell Computers--were forced to lay off workers. Those workers lowered their own spending, forcing cutbacks in other businesses, such as restaurants, dry cleaners, and car dealerships.

To make matters worse, thousands of workers laid off in the collapse of hundreds of Internet companies--the so called dot-coms--flooded the job market at the same time. Then the September 11 attacks led to massive layoffs in industries such as airlines and hotels.

The downward spiral is generally cut short when businesses begin spending again. In a worst-case scenario, the spiral keeps going, resulting in a depression, when unemployment soars and numerous businesses go bankrupt. The last such calamity was the Great Depression of the 1930s. Economists are not predicting one now; they say that too many safeguards have been put in place to permit such a spiral.


How fast will the U.S. economy bounce back? Economists disagree. One group argues that a long-term $1.3 trillion tax cut enacted by Congress last spring has put extra cash into people's pockets--$300 to $600 for almost all taxpayers. Businesses are primed to spend because the Federal Reserve Board, appointed by the President to set bank policy, has cut interest rates--the percentage that banks charge for lending money--11 times in the last year. That makes it easier for businesses to borrow money.

"The economy is awash in a sea of [cash]," says David Littmann, the chief economist at Comerica Bank in Detroit.

But less-optimistic economists say many businesses still have more equipment than they can use. They predict consumers, who barely saved in the roaring '90s and lost money in the falling stock market, will reduce spending for some time as a long-overdue adjustment.

Meanwhile, Congress has been deadlocked for more than two months over legislation that would provide an additional $75 billion to $100 billion in tax cuts and unemployment benefits to help stimulate the economy. Democrats say the current proposal favored by President George W. Bush would give large tax cuts to the wealthy while not providing enough help to lower- and middle-income people. Republicans deny those claims and say the Democrats are stalling much-needed legislation to score political points.


The recession is putting the Bush administration in a double bind, as tax revenue decreases from last spring's tax cut. After years of budget surpluses--more taxes coming in than money being spent--the U.S. is staring at a $3 billion deficit in the coming year.

But perhaps the most important factor in a rebound is also the most intangible: confidence. When businesses predict good times ahead, they produce and spend more. When consumers feel the future is bright, they spend.

So far at least, optimism is winning. National consumer confidence, as measured in government polling, took its biggest leap in four years in December.

"People see this recession as a temporary adjustment after a long expansion that could not go on forever," says Tom W. Smith, a director at the University of Chicago's National Opinion Research Center. "The message we get is that people are hurting; they are finally beginning to experience the recession in their daily lives. But they view the economy as fundamentally sound."


FOCUS: The Recession Has Cost More Than a Million Jobs, but Optimism Is Returning


To help students understand the roots of the recession and how it affects the lives of ordinary Americans, including teens.

Discussion Questions:

* Should companies have to show serious financial problems before laying off workers? Would this be undue interference in private enterprise?

* Why do you believe Democrats and Republicans disagree over whether a proposed tax cut favored by President Bush would benefit wealthy Americans while not providing enough help to those in middle- and lower-income brackets?

* What kinds of occupations do you believe are most likely and least likely to be adversely affected by a recession?


Before Reading: Write "Ripple Effect" on the board. Beneath this headline draw four concentric circles. Label the center circle "company sales fall." Label successive circles "workers laid off," "families cut expenses," "teens' college plans on hold." Tell students that, like a stone dropped into a pond, the effects of an economic downturn--or upturn--ripple through society.

Critical Thinking/Discussion: One of the more difficult economic concepts for many students to understand is the powerful effect psychology has on the economy. You can demonstrate this impact by citing one example from the article--layoffs in the airline and hotel industries following the September 11 terrorist attacks. Discuss the relationship between these industries, both of which were relatively sound on September 10, and the events of September 11. The answer is psychology; many people, fearing new attacks, avoided flying. That fear then rippled across the U.S., eroded confidence, and sent a huge sector of the economy into a tailspin. Tell students the airline/hotel example applies equally to other economic phenomena discussed in the article, such as the failure of many so-called dot-coms.

Next, have students apply the example to their community. Suppose a major local industry hinted that it might close. How might that affect people's confidence? How might it affect their spending habits?

Research: Have students do some basic research on their state. Have local newspapers written about a recession on the state level? How does their state's unemployment rate compare with the U.S. average?
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Article Details
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Author:Vilbig, Peter
Publication:New York Times Upfront
Geographic Code:1USA
Date:Feb 11, 2002
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